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Common Correlated Effects and International Risk Sharing

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  • Peter Fuleky

    ()
    (UHERO and Department of Economics, University of Hawaii at Manoa)

  • L Ventura

    (Department of Economics and Law, Sapienza, University of Rome)

  • Qianxue Zhao

    (Department of Economics, University of Hawaii at Manoa)

Abstract

Existing studies of risk pooling among groups of countries are predicated upon the highly restrictive assumption that all countries have symmetric responses to aggregate shocks. We show that the conventional risk sharing test fails to isolate idiosyncratic fluctuations within countries and produces spurious results. To avoid these problems, we propose an alternative form of the risk sharing test that is robust to heterogeneous country characteristics. In our empirical example, we provide estimates using the pro- posed approach for various groupings of 158 countries.

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File URL: http://www.economics.hawaii.edu/research/workingpapers/WP_13-15R.pdf
File Function: First version, 2013
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Bibliographic Info

Paper provided by University of Hawaii at Manoa, Department of Economics in its series Working Papers with number 201315.

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Length: 28 pages
Date of creation: Aug 2013
Date of revision:
Handle: RePEc:hai:wpaper:201315

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Keywords: Panel data; Cross-sectional dependence; International risk sharing; Consumption insurance;

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